CF Arch Cru Global Growth Fund, CF Arch Cru Balanced Fund, CF Arch Cru Income Fund and CF Arch Cru Finance Fund, the sub-funds of CF Arch Cru Diversified Funds, an Investment Company with Variable Capital) (the "Fund")
We would like to take this opportunity to provide you with the latest information about the review of the Fund which we are undertaking, together with an update on the expected timescale for its completion and for the proposed communication of our findings.
The review of the Fund
Much of our work following the suspension of dealings in the shares of the Fund has focussed on reviewing the assets of the Guernsey Incorporated Cell Companies (the "Cells"), which are the Fund's main investments. We have engaged the services of specialists, including PricewaterhouseCoopers LLP ("PwC"), to assist us in our review. We have made good progress to date and some elements are now complete or nearing completion. We comment on this progress below.
1. The valuation and liquidity of the assets of the Cells
Our assessment of the value of the underlying assets of the Cells (which is being conducted separately from the work normally undertaken in relation to their valuation and audit), has proved to be extremely complex, particularly in the current unprecedented market conditions. The nature of the assets, many of which are not listed on public markets and therefore have no readily available 'market price', makes this particularly difficult. Whilst we had been hopeful that our valuation work would be completed by the end of September, some aspects are taking longer than expected. In particular, there has been a delay in the publication (which was due by the end of September 2009) of the audited financial statements of the Cells for the financial year ended 31 March 2009. The finalisation of our valuation of the Fund is dependent on the availability of this information. Our current understanding is that the audited financial statements of the Cells will be published in the next 4 to 8 weeks, and this has been confirmed in a statement (the "Statement") released on the Channel Islands Stock Exchange ("CISX") on 2 October 2009 by Arch Guernsey ICC Limited (the 'umbrella' company for the Cells). We are in continuous dialogue with all parties involved in the audit of the Cells, including the directors, administrator, custodian and auditor, with a view to expediting this process.
As you will understand, until all the work in this area has been completed it would not be appropriate to speculate on the current value of the Fund's assets. However, as we have indicated previously, shareholders should take account of the possibility of a fall in the value of the underlying assets of the Cells, and therefore the value of the assets of the Fund, in their financial planning. If you are in any doubt about the implications of this, please discuss the matter with your independent financial adviser ("IFA").
There is also a continued lack of immediate liquidity within the Fund as a whole. This is for two principal reasons. Firstly, as we mentioned in our letter of 28 July, some of the underlying investments of the Cells are themselves illiquid in nature. Secondly, the listing of the shares of the Cells on the CISX was suspended with effect from 27 July 2009.
2. The existence and ownership of the assets of the Cells
As part of our review, we have also been keen to ensure that there is adequate evidence of the existence and ownership of the underlying assets of the Cells. We are pleased to report that this aspect of our review has been completed and has raised no concerns. This means that, whilst we are still in the process of determining the value of the assets of the Cells, there is evidence those assets exist and are owned by the Cells.
Fees and charges payable out of the Fund
In our letter of 28 July 2009, we informed shareholders that the collection of various charges which are calculated by reference to the net asset value of the Fund, including but not limited to the annual management charge, the depositary fee and the fees of the custodian and administrator, had been suspended. We can confirm that this remains the case.
Annual report and accounts of the Fund
As we explained in our letter of 28 July 2009, the annual report and accounts for the Fund for the year ended 31 December 2008 have been delayed. Ernst & Young LLP, the auditors to the Fund, continue to conduct further work in relation to the audit of the Fund's valuation. The publication of the Fund's report and accounts will follow the publication of the financial statements of the Cells referred to above. When we are able to give you a clearer indication as to when this is likely to be, we will of course do so.
Support for shareholders
We are aware that some shareholders are experiencing financial difficulty. We are considering options for support to be provided to shareholders, and we will report back on that once our valuation work is complete.
The future options for the Fund
We are now in the final stages of our detailed assessment of possible options for the future of the Fund. We continue to liaise closely with all relevant parties, including the Financial Services Authority ("FSA"), to discuss these options and to ensure all shareholders' interests remain safeguarded.
Conclusion
We hope to conclude our current work on all key issues referred to in this letter within the next 6 to 8 weeks. We continue to work closely with the FSA, who are monitoring our review, to resolve these issues as quickly as possible whilst ensuring that the interests of shareholders in the Fund – which remain of paramount importance to us – are appropriately safeguarded.
If you have any questions regarding the suspension of dealings in the Fund in the meantime, please contact us on 0845 6080958 or alternatively email us at technical.services@capitafinancial.com